Many people know that a will only comes into effect after a person dies. But a living trust is a type of a will that is operational while the property owner is still alive. A living trust is commonly used to manage assets while the owner is still alive. For instance a parent can create a living trust to allocate property to his or her loved ones while he is still alive. Anyone can create a living trust with the help of a lawyer.

A living trust is a legal document that any person (grantor) can create while still living. It is almost similar to a will in the sense that it stipulates the wishes of the grantor as far as property, heirs, and dependents are concerned. The major difference between a will and a living trust is that the former comes to effect only after the grantor has passed on while the later can be effected while the grantor is still alive.

How Does a Living Trust Work?

Almost everything owned by a grantor can be listed in a will. Examples of such things include vehicles, real estate, bank accounts, and stocks, among others. When a living trust is being created, the property owner also known as the grantor is supposed to transfer his or her assets to a trust.

For example, if a person owns rental property and would like to create a living trust. He or she will be required to replace the personal details in the deed of property with those of the trust. That means the grantor will no longer be the owner of the property but instead, the ownership will be under the living trust. The same thing can be done with all other properties such as vehicles, land, bank accounts, and so on and so forth. This entire process is referred to as funding the trust and all the property listed is what forms a trust fund.

The next step is for the grantor to name the trustee who will be charged with the responsibility of carrying out the instructions contained in the living trust. The grantor can choose one of the relatives to be the trustee or a professional from a financial institution.

Types of Living Trusts

There are basically two types of living trusts. The most common is a revocable trust. Just as the name suggests, a revocable living trust is changed or canceled by the guarantor whenever they wish. Although the process may take some time, it is an option always available to the owner of the living trust.

There is also the option of an irrevocable living trust. This is a living trust that cannot be changed or canceled once it has been created. It is only a court that can make changes in special circumstances.

Benefits of a Living Trust

1. Provate Avoidance - One of the major benefits of having a living trust is that it eliminates the burden of suffering through the probate process. Probate is a court process where the wishes of the guarantor in a living trust are implemented. It can be costly, time-consuming, and protracted.
2. It saves money - A living trust can help you save money by avoiding the expenses associated with the probate court process. For example, there will be no need to hire a lawyer for the distribution of assets and property. It also reduces the chances of anyone contesting the living trust since all the instructions about how the property is supposed to be distributed are stipulated in the living trust.
3. It helps in case of incapacitation - In case the guarantor for any reason becomes incapacitated, the appointed trustee can step in and manage the property on his or her behalf without necessarily involving the courts. The guarantor will be able to save money by avoiding a conservator to manage your estate or property.
4. It protects the privacy of a guarantor - A living trust is a private document. Only the parties involved are privy to its contents.

Disadvantages of a Living Trust

1. Legal fees - Setting up a living trust can be a costly affair. It requires the help of a lawyer who has experience in wills and trusts. Every step of the process will definitely cost you money.
2. Personal inconvenience - Considering the fact that a living trust is created while the guarantor is still living, it means that they are no longer in charge of their property. All your assets will be under a trust. In case the guarantor wants to sell any of the assets, he or she will have to consult with the trustee.
3. Creating a living trust is a long a protracted process - While it’s convenient later, actually setting up the trust can take some time. If someone wishes to make changes to a revocable trust, they’ll have to start over and do it all again.